EUR 53.02 For Business Accounts Only

OANDO PLC - Towards a leaner, E&P focused operator

OANDO reported H1’16 loss after tax of N27 billion compared to loss of N35 billion in H1’15. Amongst other operating challenges, the performance was adversely impacted by reduction in oil and gas production to 45k boed (from 55k a year ago), much in line with Vetiva estimate for the year, as militant activities continue to disrupt output in the Niger Delta. Management reported that the devaluation of the naira in June has resulted in unrealized foreign exchange losses on USD denominated liabilities. We recall that post the review period, management has taken steps to reduce USD liability by converting part ($133 million) to local currency. This should help reduce the impact of foreign exchange volatility on finance cost going forward.

Following H1’16 result, we raise our revenue estimate to N212 billion (Previous: N119 billion) and project a N28 billion loss for the year (Previous: N22 billion profit), including profit from discontinued businesses. Whilst our model had already factored in the part-sale of Oando Downstream (accounting for only 49%), we had prior to now carried the full value of OES in our Sum-of-the-part valuation of the OANDO group. After adjusting for OES sale, FX-driven higher net debt balance (as at 30 June) and this H1 result, we cut our TP on OANDO to N9.86 (Previous: N14.80).

OANDO is one of Africa’s largest integrated energy solutions company with operations geographically spanning several jurisdictions of Europe, North America and West Africa and primarily in Nigeria. Operations include petroleum marketing, gas and power distribution, international supply, trading, energy services and exploration and production. In 2014, OANDO acquired the Nigerian businesses of ConocoPhillips to become one of the countries largest E&P companies.